CDL H-Trust – DBSV
Marching forward
• April tourism data point to a potential record breaking 2Q12 performance for hoteliers
• RevPAR growth momentum continues as hoteliers price room rates higher
• CDL HT (BUY, TP raised to S$2.06) and GENS (S$2.05) offer the best exposure into the industry
Visitor arrivals hit another high in April 12. Latest data from the Singapore Tourism Board (STB) for April12 provides us with a glimpse of how 2Q12 hospitality numbers could turn out. Tourism arrivals in April 12 remained high at 1.2m visitors (+9% y-o-y), a new record. YTD visitor arrivals have hit 4.8m, representing 33% of STB’s higher end target of 13.5-14.5m for 2012. With the industry approaching the seasonally high tourism season of June-July, we are optimistic that the industry could potentially exceed the projections set by STB.
RevPAR hits new high in April, growth momentum picks up. The strong visitor numbers, fueled by major MICE events like Food & Hotel Asia held in April 12, have led to strong demand for rooms, and thus room rates have remained on a firm uptrend on a q-o-q basis. Hotel performance remains robust, with occupancies hovering at a high of c87%. Average room rates at S$261/night, translating to a RevPAR of c.S$227/night, represent a 12% y-o-y jump, surpassing the S$216/night.
We expect hoteliers to report sequentially stronger RevPAR in the coming quarters. Hospitality data should continue to remain robust given the expected strong lineup of MICE events in the coming months (eg.CommunicAsia 2012 to be held from 19-22nd June, F1 race in September12) and the seasonally peak tourist holiday season in June-July. In addition, supply is expected to remain tight, especially in the core city area given the closure of Pan Pacific Singapore (790 rooms, representing close to 1.5% of total room supply in Singapore) for renovations and is expected to re-open only in September12 in time for the Formula one race.
Stock picks. We continue to like CDL Hospitality Trust (BUY, TP raised to S$2.06 as we roll forward numbers to 2013), given its leverage into the robust tourism sector in Singapore. The stock offers FY13-14F yields of close to 6.1 – 6.5%. GENS (BUY, TP S$2.05) should also benefit from expected stronger visitation at Resorts World @ Sentosa during the coming holiday season.
K-REIT – CIMB
Tax boost fromMBFC 1
Tax transparency for MBFC 1 should allow savings translating to 2-3% of DPU annually. We do not dismiss the possibility of similar conversions and structures for ORQ and MBFC 2, which could allow less tax leakages and potential simplification of holding structures.
We raise DPUs and DDM-based target price (discount rate: 8.2%) factoring in tax savings from K-REIT’s one-third stake in MBFC Phase 1.Maintain Outperform on favourable risk-reward. We see catalysts from an earlier bottoming of office market and furthertax savings.
What Happened
K-REIT has announced that BFC Development Pte Ltd, the entity which holds MBFC Phase 1 has been successfully converted to BFC Development Limited Liability Partnership. This will allow it to obtain tax transparency and not pay corporate tax on itsincome from its one-third stake in MBFC Phase 1.
What We Think
We expect this development to result in savings of about S$4m-5m (2-3%) for K-REIT annually. Savings are not retrospective, implying no claw-backs for previous taxes paid.
Management’s efforts on this are commendable. Previously, the tax leakage, income support and complex holding structures for ORQ and MBFC Phase 1 were some of the key contention points that some investors had when they compared K-REIT’s and Suntec REIT’s portfolios against CCT’s. We do not dismiss the possibility of a conversion for the holding company of ORQ and the use of a similar structure for a potential acquisition of MBFC Phase 2 for increased tax savings.
If these take place, not only will there be less tax leakages, but overall holding structures for portfolio could be less complex (e.g. unwinding of shareholders’ loan for tax shelter) to facilitate shareholders’ understanding and a potential narrowingin valuation gap against CCT.
What You Should Do
Overall, weview this news positively for both its tangible and intangible benefits. Maintain Outperform on favourable risk-reward from a potential bottoming of the office market and cheap valuations (0.8x P/BV and 7.5% yield).
Suntec – CIMB
Tax transparency for MBFC 1
Tax transparency for MBFC 1 should allow savings translating to 2-3% of DPU annually. We do not dismiss the possibility of similar conversions and structures for ORQ and MBFC 2, which could allow less tax leakages and potential simplification ofholding structures.
We raise DPUs and DDM-based target price (discount rate: 8.1%) factoring in tax savings from Suntec REIT’s one-third stake in MBFC Phase 1. Maintain Outperform on favourable risk-reward. We see catalysts from earlier bottoming ofoffice market and further tax savings.
What Happened
Suntec REIT has announced that BFC Development Pte Ltd, the entity which holds MBFC Phase 1 has been successfully converted to BFC Development Limited Liability Partnership. This will allow it to obtain tax transparency and not pay corporate tax on its income from its one-third stake in MBFC Phase 1.
What We Think
We expect this development to result in savings of about S$4m-5m (2-3%) for Suntec REIT annually. Savings are not retrospective, implying no claw-backs for previous taxes paid.
Management’s efforts on this are commendable. Previously, the tax leakage, income support and complex holding structures for ORQ and MBFC Phase 1were some of the key contentionpoints that some investors had when they compared K-REIT’s and Suntec REIT’s portfolios against CCT’s. We do not dismiss the possibility of a conversion for the holding company of ORQ and the use of a similar structure for a potential acquisition of MBFC Phase 2 for increased tax savings.
If these changes take place, not only will there be less tax leakages, but overall holding structures fortheportfolio could be less complex (e.g. unwinding of shareholders’ loan for tax shelter) to facilitate investors’ understanding and a potential narrowingin valuation gap against CCT.
What You Should Do
Overall, we view this news positively for both its tangible and intangible benefits. Maintain Outperform on favourable risk-reward from a potential bottoming of the office market and cheap valuations (0.7x P/BV and 6.9% yield).
CMT – Kim Eng
More Plus Points
Bugis+ opens its doors. We visited Bugis+ a week after its major anchor tenant UNIQLO launched its duplex flagship store, which is UNIQLO’s first street-level store in Singapore. We were encouraged by the footfall even though AEI works are not fully complete and we believe that CapitaMall Trust (CMT) will be able to bring Bugis+ up to its desired level of operation as projected. Maintain BUY.
Synergies evident between Bugis Junction and Bugis+. With UNIQLO’s 20,000-sq-ft shop as the main anchor, Bugis+ will be an extension of Bugis Junction, drawing the young and trendy that makes up its targeted captive market. By July, the bulk of the AEI works should be complete, and other offerings like the cineplex will help to attract even more shoppers when they open. Management estimates the yieldon-cost post AEI will be 5.8%, taking it much closer to Bugis Junction and vindicating its acquisition.
Portfolio still substantially catered to necessity shopping. Even though Bugis+ is geared towards lifestyle discretionary spending, CMT’s portfolio of malls remains predominantly catered to necessity shopping, accounting for approximately 73.1% of gross revenue as at end-2011. Apart from the normal rental reversion, DPU growth will also be supported by the incremental contributions from the AEIs at Clarke Quay and Atrium@Orchard when they are completed.
Hougang Plaza divestment completed. The sale of Hougang Plaza to a JV comprising Oxley Holdings and Lian Beng Group for a consideration of SGD119.1m has been completed. The divestment of this non-core asset will net CMT a handsome gain of SGD83.8m, as the new buyers look to redevelop the property. The sale is a positive indicator that the REIT is open to divesting some of its non-core assets if the right offers come along.
A ‘must-own’ stock. Notwithstanding global economic growth concerns, we believe that CMT can extend its steady growth in DPU, making it a “must-own” investment in our view. Maintain BUY, with our DDM-derived target price unchanged at SGD2.20.
CDL H-Trust – OCBC
SLOWER GROWTH FOR SINGAPORE HOTELS IN 2Q
•April tourism figures less rosy than 1Q’s
•Channel check shows weaker 2Q
•3Q not clear yet
Growing more moderately
The weak global macroeconomic conditions have begun to take a toll on the short-term performance of the local hotel industry. Apr figures released by the Singapore Tourism Board show that visitor arrivals grew 9% YoY, much less than the 14.6% YoY growth for 1Q12. Indonesia showed a significant slip in growth rate for Apr (+10.3% vs +16.0% for 1Q). Australia, HK and the UK showed YoY declines of 4.0%-14.4%. Average RevPAR for Apr grew 10.3% YoY versus the 14.7% for 1Q12.
Slower 2Q
We spoke to a hotel rooms wholesaler yesterday and got some impressions. While Apr performance for local hotels was alright, the start of May marked the beginning of a relatively quiet period for hotels, except during Herbalife Extravaganza event (24k people, 18-20 May). We estimate that occupancy growth for May was two-thirds of what was seen for Jan-Apr. 3-star hotels were different from the pack and had strong occupancies around 90%. Jun so far has been quite slow too. As an indication of the less upbeat conditions, hotels are more willing to engage wholesalers and use discounts. Even some 5-star hotels have been cutting rates by 50% at the last minute.
Question marks about 3Q
Jul and Aug are traditionally slow months for the hospitality sector. Hotel figures for Jul last year were very strong (highest occupancy month for all four hotel tiers) and could present a reasonable hurdle for this Jul to outdo. Jul figures currently do not look impressive but the short lead time means that the visibility is reduced. The integrated resorts were exceptions in 2Q and they continue to prove themselves as all-weather attractions, with their hotels clocking good occupancies through till Aug.
Maintain BUY
The long-term growth prospects for the hospitality sector are still positive and we believe our 7.5% YoY RevPAR growth estimate for CDLHT is achievable. We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04.